Environmental Economics.

• Position: Bureau News

The NBER's Working Group on Environmental Economics met in Cambridge on April 7-8. Group Director Don Fullerton of the University of Texas organized this program:

Meredith Fowlie, University of California, Berkeley, "Emissions Trading, Electricity Industry Restructuring, and Investment in Pollution Abatement"

Discussant: Erin Mansur, Yale University

Malgosia Madajewicz, Alexander Pfaff, Alexander van Geen, Joseph Graziano, Iftikhar Hussein, Hasina Momotaj, Roksana Sylvi, and Habibul Ahsan, Columbia University, "Can Information Alone Change Behavior? Arsenic Contamination of Groundwater in Bangladesh"

Discussant: David Bloom, Harvard University and NBER

Stephen Polasky, University of Minnesota, and Nori Tarui, Columbia University, "Environmental Regulation in a Dynamic Model with Uncertainty and Investment"

Discussant: Larry Karp, University of California, Berkeley

William A. Pizer, Resources for the Future, and Richard G. Newell, "Indexed Regulation"

Discussant: Ian Sue Wing, Boston University

Hilary Sigman, Rutgers University and NBER, "Environmental Liability and Redevelopment of Old Industrial Land"

Discussant: Kathleen Segerson, University of Connecticut

Policymakers increasingly rely on emissions trading programs to address the environmental problems caused by air pollution. If polluting firms in an emissions trading program face different economic regulations and investment incentives in their respective industries, then emissions markets may fail to minimize the total cost of achieving pollution reductions. Fowlie analyzes an emissions trading program that was introduced to reduce smog-causing pollution from large stationary sources (primarily electricity generators) in 19 eastern states. She develops and estimates a model of a plant's environmental compliance decision. Using variation in state-level electricity-industry restructuring activity, she identifies the effect of economic regulation on pollution permit market outcomes. She finds first that plants in states that have restructured electricity markets are less likely to adopt more capital intensive compliance options. Second, this economic regulation effect, together with a failure of the permit market to account for spatial variation in marginal damages from pollution, has resulted in increased health damages. Had permits been defined in terms of units of damages instead of units of emissions, more of the mandated emissions reductions would have occurred in restructured...